The reaction of Asian-Pacific investment company returns to U.S. equity returns
-
Author(s)Earl D. BensonLink to ORCID Index: https://orcid.org/0000-0001-9896-9861
,
Sophie X. KongLink to ORCID Index: https://orcid.org/0000-0002-2772-248X
-
DOIhttp://dx.doi.org/10.21511/imfi.18(2).2021.17
-
Article InfoVolume 18 2021, Issue #2, pp. 209-222
- Cited by
- 734 Views
-
266 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study is relevant to investors who wish to diversify their investment portfolio by investing in U.S.-based investment companies that invest in specific Pacific Basin countries to better understand the diversification benefits of such investments. The purpose is to examine the daily returns of selected U.S.-based, country-focused (Pacific Basin) investment companies to see if those returns accurately reflect the changes of the equity indices of the corresponding Pacific Basin market on the following trading day. The method used is that the reactions of daily investment company returns compared to U.S. market daily returns are examined for Japan, South Korea, and Australia for the period 2006–2010. These return reactions are compared to the home-country returns. Next, for the period from 2011 to 2015, the examination is broadened to include U.S.-based investment companies that invest in Taiwan, Singapore, China, and Indonesia. The results show that investment company share prices on “day t” tend to overreact to changes in the S&P 500 on “day t”, relative to “day t+1” changes in the corresponding Pacific Basin market index – often by more than 100%. Finally, the study shows that on “day t+1” these investment company share prices exhibit a reversal. These findings indicate that the diversification benefits of investing in these Pacific Basin investment companies are reduced due to this increased volatility. S&P 500 returns are accompanied by significantly larger returns on the Pacific Basin investment company shares than are actually realized in the home country on the following day, suggesting that the diversification benefits are not being fully realized.
- Keywords
-
JEL Classification (Paper profile tab)G11, G15, F21
-
References18
-
Tables5
-
Figures0
-
- Table 1. Regression estimates for the determinants of Japanese equity investment company returns using daily returns for 2006–2010 for the days when the S&P 500 daily return was –1% or lower
- Table 2. Regression estimates for the determinants of South Korean equity investment company returns using daily returns for 2006–2010 for the days when the S&P 500 daily return was –1% or lower
- Table 3. Regression estimates for the determinants of Australian equity investment company returns using daily returns for 2006–2010 for the days when the S&P 500 daily return was –1% or lower
- Table A1. 2011–2015 daily return impact of S&P 500 changes on foreign index, ETF and CEF returns
- Table A2. Determinants of U.S. based Pacific Basin equity investment company returns – 2011–2015 (S&P 500 return ≤ –1%)
-
- Becker, K., Finnerty, J., & Gupta, M. (1990). The intertemporal relation between the U.S. and Japanese stock markets. The Journal of Finance, 45(4), 1297-1306.
- Becker, K., Finnerty, J., & Tucker, A. (1992). The intraday interdependence structure between U.S. and Japanese equity markets. The Journal of Financial Research, 15(1), 27-37.
- Benson, E., & Kong, S. (2015). The co-movement of U.S. equity market returns with the developed and emerging markets of Australasia and Asia. International Journal of Business and Social Research, 5(1), 102-117.
- Benson, E., & Kong, S. (2019). The influence of U.S. equity returns on Asia-Pacific equity markets. Investment Management and Financial Innovation, 16(4), 46-60.
- Cheng, H., & Glascock, J. (2006). Stock market linkages before and after the Asian financial crisis: Evidence from three greater China economic area stock markets and the US. Review of Asian-Pacific Financial Markets and Policies, 9(2), 297-315.
- Cheung, Y., & Mak, S. (1992). The international transmission of stock market fluctuation between developed markets and the Asian-Pacific markets. Applied Financial Economics, 2(1), 43-47.
- Dekker, A, Sen, K., & Young, M. (2001). Equity market linkages in the Asia Pacific region: A comparison of the orthogonalized and generalized VAR approaches. Global Finance Journal, 12(1), 1-33.
- Hughen, C., & Mathew, P. (2009). The efficiency of international information flow: evidence from the ETF and CEF prices. International Review of Financial Analysis, 18(1-2), 40-49.
- Jares, T., & Lavin, A. (2004). Japan and Hong Kong exchange-traded funds (ETFs): discounts, returns, and trading strategies. Journal of Financial Services Research, 25(1), 57-69.
- Kolluri B., Machuga, S., & Wahab, M. (2014). Co-movements of US and Asian equity markets: Evidence from asymmetric and time-varying coefficients. Review of Asian-Pacific Financial Markets and Policies, 17(4), 297-315.
- Koutmos, G., & Booth, G. (1995). Asymmetric volatility transmission in international stock markets. Journal of International Money and Finance, 14(6), 747-762.
- Levy, A., & Lieberman, O. (2013). Overreaction of country ETFs to US market returns: intraday vs. daily horizons and the role of synchronized trading. Journal of Banking & Finance, 37(5), 1412-1421.
- Lin, W., Engle, R., & Ito, T. (1991). Do bulls and bears move across borders? International transmission of stock returns and volatility as the world turns (Working Paper No. 3911). National Bureau of Economic Research.
- Liu, Y. A., & Pan, M. (1997). Mean and volatility spillover effects in the U.S. and Pacific-Basin stock markets. Multinational Finance Journal, 1(1), 47-62.
- Marszk, A., Lechman, E., & Kato, Y. The Emergence of ETFs in Asia Pacific. Springer Nature, Switzerland.
- Panton, D, P Lessig, & Joy, O. (1976). Comovement of international equity markets: a taxonomic approach. Journal of Financial and Quantitative Analysis, 11(3), 415-432.
- Pennathur, A., Delcoure, N., & Anderson, D. (2002). Diversification benefits of IShares and closed-end country funds. Journal of Financial Research, 25(4), 541-557.
- Wei, K. C., Liu, Y., Yang, C., & Chaung, G. (1995). Volatility and price change spillover effects across the developed and emerging markets. Pacific-Basin Finance Journal, 3(1), 113-136.
-
The influence of central bank monetary policy announcements on cryptocurrency return volatility
Investment Management and Financial Innovations Volume 14, 2017 Issue #4 pp. 60-72 Views: 2734 Downloads: 499 TO CITE АНОТАЦІЯThe emergence of Bitcoin in 2009 has received considerable attention surrounding the validity of cryptocurrencies as a viable and, in some jurisdictions, a legal currency alternative. Despite widespread concern that these cryptocurrencies are fostering the environment within which a substantial bubble can occur, it is important to analyze whether these new assets are behaving similarly to major international currencies. This paper investigates the effects of international monetary policy changes on bitcoin returns using a GARCH (1.1) estimation model. The results indicate that monetary policy decisions based on interest rates taken by the Federal Open Market Committee in the United States significantly impact upon bitcoin returns. After controlling for international effects, we find significant evidence of volatility effects driven by United States, European Union, United Kingdom and Japanese quantitative easing announcements. These results show that, despite its nature and ideals, bitcoin seems to be subject to the same economic factors as traditional fiat currencies, and is not entirely unaffected by government policies. This result has implications for investors using bitcoin as a hedging or diversification tool. In addition, we contribute to the existing debate regarding the classification of bitcoin as an asset class, by illustrating that bitcoin volatility exhibits various reactions that bear resemblance to both currency pairs and store-of-value assets.
-
Investment motives and preferences – An empirical inquiry during COVID-19
K. Riyazahmed
doi: http://dx.doi.org/10.21511/imfi.18(2).2021.01
Investment Management and Financial Innovations Volume 18, 2021 Issue #2 pp. 1-11 Views: 1943 Downloads: 1900 TO CITE АНОТАЦІЯFollowing the COVID-19 breakout, investment in shares, mutual funds, and life insurance are witnessing a growing trend in India. Hence, examining the determinants of investor preferences is necessary to maintain a positive trend. This study analyzes the impact of investor motives and awareness on investor preferences using the data collected from 753 Indian investors in 2020. Factor analysis grouped the investment motives into six categories, namely Nature of investments, Future financial needs, Investor personal characteristics, Safety and stability of investments, Investor behavioral aspects, and Investor’s options. The regression model used to find the impact of the investment motives and the awareness on the investor preferences explains 52.3% of changes in investor preference. Investment factors like Nature of investments, Investor personal characteristics, Investor behavior, Investor options, Awareness of mutual funds, and shares have a significant impact on investor preferences. Further, the awareness level of mutual funds and the stock market are the major variables contributing to Investors’ preference rather than identified investment factors. Investors’ personal characteristics like knowledge, confidence, ability, responsibility, and belief negatively influence investor preferences. This study adds to the existing literature by analyzing investment motives and preferences during the pandemic.
-
Performance evaluation of Saudi equity mutual funds: Fama decomposition model
Investment Management and Financial Innovations Volume 15, 2018 Issue #4 pp. 158-168 Views: 1561 Downloads: 894 TO CITE АНОТАЦІЯThis paper is in pursuit of analyzing and elongating prior research on the performance evaluation of mutual funds by a comparative analysis with three categories of 82 Saudi equity funds during 2011 to 2016 using Fama’s decomposition model. The paper also made an attempt to explore the relationship with the risk reward ratio to the relative performance measure in predicting the future performance of the Saudi equity fund returns. The empirical results show that Saudi local equity funds perform better followed by Arabian and international/global equity funds in terms of expected signs and diagnostic tests.
